Repeat the previous problem assuming that the stock pays a continuous dividend of 8% per year (continuously
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In previous problem
Let S = $100, K = $95, r = 8% (continuously compounded), σ = 30%, δ = 0, T = 1 year, and n = 3.
a. Verify that the binomial option price for an American call option is $18.283. Verify that there is never early exercise; hence, a European call would have the same price.
b. Show that the binomial option price for a European put option is $5.979. Verify that put-call parity is satisfied.
c. Verify that the price of an American put is $6.678. Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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a We can calculate for the different nodes of the tree taking into account the dividend yield We can ...View the full answer
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